HighGround Dairy Fonterra GDT Volume Forecast Analysis

Fonterra has once again projected an increase to product volumes on offer at the GlobalDairyTrade auction over the next 12 months. Total forecasted volumes were pegged at 773,710 metric tons (MT) with this release, a 17,675 MT (2.3%) gain over projections put forth two weeks prior. This marks the third straight forecast Fonterra has increased its outlook for the coming year, 58,906 MT (8.2%) more than was projected at the beginning of September. With weather conditions for the region remaining favorable as New Zealand heads into their peak production season, all signs point to a strong supplies after lagging for much of the second half of last season due to drought. Offerings of Fonterra whole milk powder (WMP) for Tuesday’s event remain unchanged from the previous forecast at 24,500 MT. Fonterra’s 12 month forecast has now increased for the third straight event and projected at 480,000 MT, a 15,000 MT (3.2%) increase over the previous release, and a whopping 66,500 MT (15.4%) gain over the three event span.  However, when reviewing Fonterra’s historical monthly GDT volumes, the increases in the long range forecast may be overshadowed by the declines in volumes versus the previous year.  Though August volumes sold on GDT totaled 75,000 MT, an increase of 50% versus Aug 2012, subsequent monthly volumes have been much lower in September & October (-16% & -28%) versus 2012 and are projected to be below previous year totals through next February.  Given Fonterra’s push to shift product mix toward whole milk powder production and milk collections expected to be 5-6% above last year, it is likely that a large chunk of volume has been pulled from GDT to service contract customers willing to pay a premium to lock up supply versus